Detailing VUDU's Streaming Technology, And What It Means to Wal-Mart

When Walmart (NYSE:WMT) announced it had acquired VUDU, quite a few discussions were taking place on the web suggesting that Walmart would now need to setup a data center to be able to handle the delivery of videos or that Walmart wasn't going to want to support VUDU's P2P based technology. Since neither of those assumptions are accurate, I thought it might be helpful to detail what video technology VUDU is using and how they encode and deliver content to devices.

For anyone like myself that has an original VUDU device, videos are still delivered using P2P technology that is enabled by the fact that the devices have built in storage. But starting last year, VUDU decided to get out of the hardware business and has been working to get their VUDU platform embedded into as many third party devices as possible. VUDU now has deals with LG (OTC:LGERF), Mitsubishi (OTCPK:MIELY), Samsung (OTC:SSNLF) , SANYO (OTC:SANYY), Sharp (OTCPK:SHCAY), Toshiba (OTCPK:TOSBF) and VIZIO. For these broadband enabled devices, VUDUs P2P technology is not being used since most of those hardware models have no internal storage. That might change over time if SD memory or hard drives get included in TVs and Blu-ray players, but for now, VUDU can't use their P2P technology for the delivery of videos.

Today, VUDU uses both Limelight (NASDAQ:LLNW) and Akamai (NASDAQ:AKAM) to deliver their videos to third party devices and encodes all of their content in H.264 for SD, HD and VUDU's proprietary HDX quality. For each quality classification, VUDU is doing multiple encodes which takes advantage of their own in-house adaptive streaming technology for the delivery. SD quality videos are encoded at 1Mbps, 1.5Mbps and 2Mbps. 720p HD content is encoded at 2.25Mbps, 3.75mbps and 4.5Mbps. 1080p HDX videos are encoded at 4.5Mbps, 6.75Mbps and 9Mbps.

While VUDU encodes using the H.264 standard, they spend a lot of time optimizing their videos by using an open-source video encoding platform that they have made a lot of modifications to. This is one of the reasons why people who use VUDU, including myself, think they have the best looking videos today. To me, VUDU's 1.5Mbps stream looks much better quality wise, than Netflix's 1.5Mbps stream and has some of the fastest start times I have seen, outside of 1080p streaming on the Xbox 360.

In addition to VUDU streaming all of their media, they also are the only one that I know of that streams their entire UI. Since their UI is not inside a web browser, the VUDU application actually sits in the cloud and as a result, their architecture enables them to update their application very quickly. This is very different when compared to devices with embedded software that requires a lot of effort to manage. When your app sits in the cloud, you're not writing software and instead, are simply authoring just like you would if you were updating a website. This is one of the reasons VUDU is able to integrate with Rotten Tomatoes, Wikipedia and last week launched support for Twitter and Facebook.

Some folks have said that with VUDU being forced to abandon their P2P platform, and given the bandwidth required to distribute their premium HDX movies, VUDU's cost structure drastically changes for the worse. Some have implied that this will force Walmart into making a big infrastructure investment to support the distribution of videos, but that's not accurate. Since VUDU already uses third party CDNs, they don't need to make any kind of large investment into VUDU's delivery capabilities. And while VUDU created their P2P technology years ago to circumvent the high price of delivery, today, the price of delivering movies has drastically fallen from years ago with the average movie now only costing a few cents to deliver.

As a user of VUDU and just about every other movie service available today, I've always felt that the VUDU platform and quality were very good, with a great user-experience. While VUDU would have already been dead if they had not changed their business model last year and gotten out of the hardware business, getting acquired by Walmart certainly breathes new life into the company. But I'm still skeptical that Walmart is going to know what to do with the business and will give VUDU the resources they need to be successful in the market. While I could be wrong, Walmart just doesn't have a good track record of understanding the digital media landscape.